report and recommendations on operation & …

Docket:

Exhibit Number

Commissioner

Administrative Law Judge

Public Advocates Office

Witness

:

:

:

:

:

A.21-01-003

Cal Adv - ____

Martha Guzman Aceves

Daphne Lee

Andrew Sweeney

REPORT AND RECOMMENDATIONS

ON

OPERATION & MAINTENANCE EXPENSE

Application 21-01-003

San Francisco, California

May 25, 2021

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iii

MEMORANDUM

The Public Advocates Office at the California Public Utilities Commission (Cal 1

Advocates) examined requests and data presented by San Jose Water Company (SJWC) 2

in Application (A.) 21-01-003 (Application) to provide the California Public Utilities 3

Commission (Commission) with recommendations that represent the interests of SJWC’s 4

customers for safe and reliable service at the lowest cost. This Report is prepared by 5

Andrew Sweeney. Ting-Pong Yuen is Cal Advocates’ project lead for this proceeding. 6

Mukunda Dawadi is the oversight Program and Project Supervisor, and Angela Wuerth is 7

the legal counsel. 8

Although every effort was made to comprehensively review, analyze, and provide 9

the Commission with recommendations on each ratemaking and policy aspect of the 10

requests presented in the Application, the absence from Cal Advocates’ testimony of any 11

particular issue does not constitute its endorsement or acceptance of the underlying 12

request, or the methodology or policy position supporting the request. 13

iv

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v

TABLE OF CONTENTS

Memorandum ...................................................................................................................... iii

Table of Contents ................................................................................................................. v

Executive Summary ............................................................................................................ vi

Operation and Maintenance Expense .................................................................................. 1

I. Introduction ............................................................................................................... 1

II. Summary of Recommendations ................................................................................ 2

III. Discussion ................................................................................................................. 3

A. Purchased Water Potable, Purchased Water Recycled, Pump Tax Expense, and

Purchased Power Expenses ......................................................................................... 3

B. Purchased Materials/Services ................................................................................. 8

C. Expenses for Water Treatment, Water Quality and Distribution ......................... 14

D. Maintenance Expenses.......................................................................................... 18

IV. Conclusion ............................................................................................................... 19

Attachment 1-1: Statement of Qualifications – Andrew Sweeney ................................ 20

Attachment 1-2: Valley Water 2021-2022 PROPOSED WATER CHARGES ............ 22

Attachment 1-3: SJW Group 2020 Sustainability Report ............................................. 26

vi

EXECUTIVE SUMMARY

This Report provides the Public Advocates Office at the California Public Utilities 1

Commission (Cal Advocates) analyses and recommendations regarding San Jose Water 2

Company’s (SJWC) Test Year (TY) 2022 Operation and Maintenance (O&M) Expense. 3

The Commission should authorize an O&M Expense budget of $220,784,505, which is 4

greater than SJWC’s request of $207,830,874.1 For TY 2022, the Commission should 5

authorize the following specific O&M Expense budgets: 6

1. $110,926,899, $3,662,614 and $56,762,808 respectively for Purchased Water 7

Potable, Purchased Water Recycled and Pump Taxes. SJWC’s forecasts of 8

$100,373,135,23 $3,210,0504 , and $50,979,4695 are not accurate, are likely to be 9

“trued-up,” and should not be used to set the budget for this O&M category. 10

2. $5,592,801 for Purchased Power Expense. SJWC’s forecast of $7,422,5146 is not 11

accurate and should not be used to set the budget for this O&M category. 12

3. $10,421,700 for Purchased Materials/Services Expense (sans water treatment and 13

water quality expenses). SJWC’s forecast of $11,981,3007 is not accurate and 14

should not be used to set the budget for this O&M category. 15

1 A.21-01-003, SJWC Exhibit F, WP 8-02 at cell L40. In the 45-day update the total O&M Expense was

$210,014,158.

2 Cal Advocates’ recommendations are based on SJWC’s application figures. Any differences in SJWC’s

application figures and SJWC’s 45-day update are footnoted.

3 A.21-01-003, SJWC Exhibit F, WP 8-07, at cell D18. SJWC’ s 45-day update estimated $101,304,987.

4 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-07, at cell D39. This is SJWC’s

application figure; the 45-day update gave a figure of $3,662,614.

5 .21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-07, at cell D26. This is SJWC’s application

figure; the 45-day update gave a figure of $52,029,418.

6 A.21-01-003, SJWC Exhibit F, WP 8-06 at cell L31. In the 45-day update the total O&M Expense was

$7,654,428.

7 A.21-01-003, SJWC Exhibit F, WP 8-15 at cell K27+K28. In the 45-day update SJWC estimated

$11,770,300.

vii

4. $1,457,854 for Water Treatment and Water Quality Expense. SJWC’s forecast of 1

$1,512,9588 is not accurate and should be used to set the budget for this O&M 2

category. 3

5. $17,157,908 for Maintenance Expense. SJWC’s forecast of $16,988,3429 is not 4

accurate and should not be used to set the budget for this O&M category. 5

8 A.21-01-003, SJWC Exhibit F, WP 8-15 at cell K29+K30. In the 45-day update SJWC estimated

$1,457,854.

9 A.21-01-003, SJWC Exhibit F, WP 8-02 at cell L38. In the 45-day update the total Maintenance

Expense was $17,883,488.

1

OPERATION AND MAINTENANCE EXPENSE

I. Introduction 1

This report contains (Cal Advocates) recommended San Jose Water Company’s 2

(SJWC) Test-Year (TY) 2022 Operation and Maintenance (O&M) Expenses budget.10 3

SJWC requests a TY 2022 budget of $207,830,87411 12 in combined O&M Expenses with 4

$190,842,53213 for operational expenses and $16,988,34214 for maintenance expenses, 5

which is approximately 3.78%15 higher than authorized by the Commission for 2019.16 6

The Operations Expenses include (1) water source of supply costs such as purchased 7

water and pump taxes, (2) costs related to pumping such as purchased power, (3) costs 8

related to water treatment, and water quality, such as chemical costs, (4) costs related to 9

water transmission and distribution such as transportation, and (5) costs related to 10

customer accounts such as purchased services – materials & supplies, and conservation – 11

material and supplies. Maintenance Expenses are also split into the same sub-categories. 12

10 Numerous company witnesses support SJWC requests in A.21-01-003, SJWC Exhibit E, Results of

Operations Report [hereinafter A.21-01-003, SJWC Exhibit E], and in Exhibit F, GRC Workpapers

[hereinafter A.21-01-003 SJWC Exhibit F]. A.21-01-003, SJWC Exhibit E, Chapters 8 and 16 pertain to

SJWC’s requests for O&M expenses.

11 A.21-01-003, SJWC Exhibit E, CH-8, “Operations and Maintenance Expenses” p.8-8 Table 8-B.

12 A.21-01-003, SJWC Exhibit F, WP 8-02, at cell L64. In the 45-day update the total O&M Expense was

$210,154,263.

13 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-01, at cell L57. In the 45-day update

SJWC requested $192,130,670.

14 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-02, at cell L38. In the 45-day update

SJWC requested $17,883,488.

15 A.21-01-003 SJWC Exhibit F, WP8-02, at cell H40/L40 (Authorized TY 2019 expenses =

$200,261,000). (TY 2022 proposed O&M expenses = $207,830,874). ($207,830,874/200,261,000) =

1.0378 = 3.78%.

16 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-02, at cell H40.

2

The Commission should adopt a TY 2022 total budget of $220,784,05517 for O&M 1

Expenses because SJWC underestimates its forecasted O&M Expenses by $12,953,181.18 2

II. Summary of Recommendations 3

For TY 2022, the Commission should authorize the following specific O&M Expense 4

budgets: 5

• Purchased Water Potable, Purchased Water Recycled, and Pump Tax budgets of 6

$110,926,899, $3,662,614 and $56,762,808 respectively for SJWC’s TY 2022, 7

and reject SJWC’s forecasts of $100,373, 135, $3,210,050 and $50,979,469. 8

• A Purchased Power budget of $5,592,801for SJWC’s TY 2022, and reject SJWC’s 9

forecast of $7,422,514. 10

• For TY 2022 O&M Purchased Services & Materials Expenses (without water 11

treatment and water quality expenses), a budget of $10,421,700, and reject 12

SJWC’s estimate of $11,981,300. 13

• A budget of $1,457,854 for Water Treatment and Water Quality Expenses and 14

reject SJWC’s TY 2022 forecast of $1,512,958. 15

• For TY 2022 Maintenance Expenses, a budget of $17,157,908 rather than SJWC’s 16

estimate of $16,988,342. 17

The table below shows a category by category breakdown of the expenses discussed 18

in this testimony, along with the aggregate difference between SJWC’s and Public 19

Advocates’ O&M Expenses Budgets. 20

17 Cal Advocates’ recommendations are based on SJWC’s application figures. Any differences in SJWC’s

application figures and SJWC’s 45-day update are footnoted.

18 Public Advocates Recommended Total Budget – SJWC Recommended Total Budget =

($220,784,055– $207,830,874) = $12,953,181.

3

Table 1-1: Itemized O&M Expenses Budget

SJWC Request Public Advocates

Recommendation Difference

Purchased Water Potable $100,373,135 $110,926,899 $10,553,764

Purchased Water Recycled $3,210,050 $3,662,614 $452,564

Pump Tax $50,979,469 $56,762,808 $5,783,339

Purchased Power $7,422,514 $5,592,801 ($1,829,713)

Total Purchased Materials & Services $11,981,300 $10,421,700 ($1,559,600)

Water Treatment and Water Quality

Expenses

Regulatory Expenses $319,338 $234,961 ($84,377)

“Other” Operating Expenses $499,60619 $443,505 ($56,101)

Total Water Treatment and Water

Quality Expenses $1,512,958 $1,457,854 (55,104)

Maintenance Expenses $16,988,342 $17,157,908 $169,566

Total Operations & Maintenance

Expenses $207,830,874 $220,784,055 $12,953,181

III. Discussion 1

A. Purchased Water Potable, Purchased Water Recycled, Pump Tax 2

Expense, and Purchased Power Expenses 3

It is important to remember that, in this GRC, the Commission is not setting the 4

amount that SJWC is allowed to spend; instead, it is setting the budget that SJWC is 5

allowed to recover from its customers. As a result of its incremental cost balancing 6

account, between this GRC and the next, SJWC can file to correct or "true-up" certain 7

expenses, namely Purchased Water, Pump Taxes, and Purchased Power, to correct for 8

19 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-01, at cell (L18+L35+L42+L52) 45-day

update 2022 figure was $499,000.

4

variances between forecasted and actual costs. In addition to reducing SJWC’S 1

forecasting risk, “Trueing up” can lead to reduced customer transparency when costs are 2

forecasted too low in a GRC and rates are increased following the GRC to recover the 3

difference between forecasted and actual costs. 4

Taking the issue of “trueing up” into account, the Commission should adopt a 5

Potable Purchased Water Expense of $110,926,899; Recycled Purchased Water Expense 6

of $3,662,614; Pump Tax Expense of $56,762,808; and Purchased Power Expense of 7

$5,592,801 for TY 2022. SJWC's annual forecasts do not account for likely cost 8

increases in purchased water and pump tax expenses. SJWC provides a less accurate, 9

lower forecast of purchased water. SJWC determined the portion of SJWC’s customer 10

bills tied to pump taxes using the current rate. However, Santa Clara Valley Water 11

(Valley Water) has adopted new water charges, effective July 1, 2021. Valley water 12

plans to increase the potable purchased water cost to $1,61420 per acre-foot from $1,474 13

per acre-foot, and the pump taxes to $1,49921 per acre-foot from $1,374 per acre-foot. 14

Purchased water costs are expenses that can be reasonably forecasted and, as such, 15

should be accurately reflected in the expense budget established in this GRC. SJWC’s 16

proposed O&M Expenses do not account for Valley Water’s price increase. SJWC 17

seeking to later recover costs incurred due to expense increases that could have been 18

reasonably forecasted in the GRC decreases customer transparency, hindering customers’ 19

understanding of utility-proposed rate increases included in the GRC application. This 20

results in customers experiencing more rate changes (and surprise billing) between 21

GRCs. 22

20 Attachment 1-2: https://www.valleywater.org/your-water/current-water-charges/your-water/current-

water-charges/2021-22-proposed-water-charges. “2021-2022 Proposed Water Charges”



https://www.valleywater.org/your-water/current-water-charges/your-water/current-water-charges/2021-22-proposed-water-charges




5

1. Purchased Water Potable 1

The Commission should increase SJWC’s Potable Purchased Water Expense 2

budget to $110,926,899 from $100,373,13522 for TY 2022. SJWC estimates a Purchased 3

Potable Water Expense of $100,373,135 based on the existing 2021 pump tax rate of 4

$1,474 per acre-foot ($4,524 per million gallons (MG)),23 which became effective 5

beginning on July 1, 2019.24 SJWC’s estimates do not account for the upcoming increase 6

in potable water price by Valley Water, the wholesaler from which SJWC buys treated 7

potable water. Valley Water is going to increase the potable (treated) water price to 8

$1,614 per acre-foot ($4,953 per MG) for zone W-2 (North County) on July 1, 2021.25 26 9

SJWC requests that any price changes by Valley Water be incorporated into the 10

purchased water expenses determined in this GRC.27 Therefore, the Commission should 11

authorize SJWC a purchased water price of $1,614 per acre-foot. Any other differences 12

between Cal Advocates’ recommended potable purchased water amounts and SJWC’s 13

requested amounts for TY 2022 are due to the differences in estimated volumes of water 14

as discussed in the Direct Testimony of Cal Advocates’ witness Mr. Ting-Pong Yuen. 15

2. Purchased Water Recycled 16

The Commission should adopt $3,662,614 as the budget for the Purchased Water 17

Recycled Expense for TY 2022. SJWC estimates its TY 2022 Purchased Water Recycled 18

Expense of $3,210,05028 based on 2021 purchased water recycled price of $1,269 per 19

22 A.21-01-003, SJWC Exhibit F, WP 8-01, at cell K27. SJWC’ s 45-day update estimated $101,304,987.

23 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-07, at cell C16.

24 A.21-01-003, Exhibit E – RO Report Public Version, p. 8-2.



26 Attachment 1-2: The final charge adopted by SJWC was $1,499/CCF for Purchased Water Potable.






6

acre-foot ($3,894 per MG),29 which became effective from July 1, 2019,30 and the water 1

quantity (824 MG31). After reviewing Recycled Purchased Water Expenses, past 2

recorded costs, and SJWC’s cost estimation methodology, a budget of $3,662,614 should 3

be adopted for the TY 2022 Recycled Purchased Water Expense to account for the 4

greater estimated volume of Recycled Purchased Water consumed. 5

3. Pump Taxes 6

The Commission should adopt $56,762,808 as the budget for Pump Tax Expense 7

for TY 2022. SJWC estimates a Pump Tax Expense of $50,979,46932 based on the 8

existing 2021 pump tax assessment of $1,374 per acre-foot ($4,217/MG),33 which 9

became effective on July 1, 2019.34 Valley Water charges SJWC a fixed pump tax 10

charge for groundwater extraction from wells. Valley Water will increase the pump tax 11

charge to $1,499 per acre-foot ($4,600/MG) for the 2021-22 fiscal year for zone W-2 12

(North County). 35 36 Assuming SJWC’s estimated quantities of extracted well water for 13

TY 2022 are unchanged, the pump tax expenses total $56,762,808, which is $5,783,33937 14

more than what SJWC proposed.38 SJWC requests that any changes by Valley Water be 15




application figure; the 45-day update gave a figure of 940MG.







36 Attachment 1-2: The final charge adopted by SJWC was $1,614/CCF for Purchased Water Potable.

37 ($56,762,808 – $50,979,469) = $5,783,339

38 2022: ($4,600 per MG * 12,339MG) = $56,762,808: ($4,217 per MG * 12,090MG) = $50,979,469.



7

incorporated into Pump Tax Expenses determined in this GRC.39 Since Valley Water 1

will increase the pump tax assessment from $1,374 per acre-foot to $1,499 per acre-foot 2

on July 1, 2021, the Commission should use the pump tax charge of $1,499 per acre-foot 3

to set the SJWC’s budget for Pump Tax Expense. Any other differences between Cal 4

Advocates’ recommended pump tax amounts and SJWC’s requested pump tax amounts 5

for TY 2022 are due to the differences in estimated volumes of water. These are 6

discussed in the Direct Testimony of Cal Advocates’ witness Mr. Ting-Pong Yuen. 7

4. Purchased Power 8

The Commission should adopt a TY 2022 budget of $5,592,801 for Purchased 9

Power Cost. SJWC’s proposed budget of $7,422,51440 is less accurate because it is based 10

on a forecast that assumes a single-year increase will become a trend. SJWC estimates 11

the total cost of purchased power by multiplying the 2020 cost per kWh by the total 12

number of kWh used.41 There are some issues with SJWC’s estimated total number of 13

kWh. SJWC’s estimate relies on the assumption42 that the higher kWh per KCCF43 14

ratio44 (0.8066 in 2020 vs. the 2016-2020 5-year average of 0.598445)46 will persist 15

through the next GRC despite the absence of historical precedent beyond 2020. Basing 16

future expenses solely on the 2020 figure would result in a high estimate of total energy 17

consumption. This method would, in turn, result in unwarranted customer bill increases 18

to cover purchased power costs. Therefore, the Commission should use the 2016-2020 19


40 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-06, at cell M31/N31. The 45-day update

was $7,654,400 for 2022.

41 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-06, at cell J23.

42 The version of CH-08, Tab WP8-06 listed in the application used the 2020 $/ kWh figure (0.1822)

rather than the 2016-2020 average $/ kWh (0.18283).

43 A KCCF is equal to 1,000 CCF. A CCF is 100 cubic feet (748 gallons) of water.

44 A higher kWh/KCCF ratio means more electricity will be expended to extract a set amount of water.

45 These are the application figures; the 45-day update figures were 0.8058 and 0.62518, respectively.

46 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-06, at cell F17-J17.

8

average kWh/KCCF ratio to calculate the total estimated kWh used, and from there, 1

estimate the total purchased power cost. Based on the updated total purchased power 2

cost, the Commission should authorize a TY 2022 budget of $5,592,801 for Purchased 3

Power Expenses. 4

B. Purchased Materials/Services 5

1. Total Purchased Materials/Services 6

The Commission should adopt a TY 2022 budget of $10,421,700 for Purchased 7

Material &Services Expense (without water treatment and water quality expenses). This 8

figure is more accurate than SJWC’s proposed budget of $11,981,300.47 SJWC forecasts 9

Purchased Material &Services Expense by subtracting water treatment costs from the 10

2018-2020 inflation-adjusted average operations and maintenance costs and then adding 11

the two. SJWC then adds any additional Purchased Materials & Services expenses that it 12

predicts will be incurred. The Commission’s Rate Case Plan for Class-A water utilities 13

instructs the utilities to present a five-year inflation-adjusted average.48 D.07-05-062 at p. 14

A.24, Footnote 7, states: 15

“In addition to any other methodology the utility may wish to use, the 16

utility shall also present, in its workpapers, an inflation adjusted simple 17

five-year average for all administrative and O&M expenses.” 18

Given the annual variance of SJWC’s historical Purchased Materials & Services 19

expenses, five years of data are necessary to ascertain increasing or decreasing trends in 20

expenditure levels. Where there is no clear trend, or a cyclic trend, in prices across all 21

five years, the Commission should adopt a five-year inflation-adjusted average49 to 22

47 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-15. In cell K32, SJWC forecasts

$13,494,258 ($11,981,300 absent water treatment and quality costs). In 45-day updated workpapers,

SJWC updated the forecasted numbers for 2022 with $13,370,154 ($11,912,300 absent water treatment

and quality costs).

48 D.07-05-062 at p, A.24, Footnote 7.

49 D.04-06-018. States that, for test year expenses, a utility must present “an inflation-adjusted simple

five-year average for all administrative, Operational and Maintenance Expenses” in addition to any other

9

smooth out the year-to-year variations in expenditures. SJWC follows the Commission’s 1

rule in forecasting water treatment & water quality expenses and calculates those costs50 2

using five years (2016-2020) of historical data. However, the utility then disregards that 3

rule and presents a forecast of its Purchased Materials & Services expenses calculated 4

using a three-year (2018-2020) inflation-adjusted average.51 Replacing the three-year 5

inflation-adjusted average with a five-year inflation-adjusted average and removing the 6

additional expenses as discussed in the subsequent section results in a TY 2022 budget of 7

$10,421,700 for the Purchased Materials & Services Expense. 8

Table 1-2: Total O&M Purchased Materials & Services (Public Advocates Recommendation)

2021 2022

Total Purchased Services (5-year inflation-adjusted average) $9,931 $10,179

Additions to Purchased Materials & Services $0 $242.7

Water Treatment and Water Quality Operations $1,269 $1,301

Water Treatment and Water Quality Maintenance $153 $157

Total O&M Purchased Materials & Services $11,353 $11,880

Total O&M Purchased Materials & Services – Treatment Costs $9,931 $10,421.7

2. Additional Expenses in Test Year 2022 9

The Commission should authorize a TY 2022 budget of $242,70052 for the 10

additional O&M Purchased Materials & Services Expense (Additional Expense). When 11

estimating Additional Expense, the Commission should exclude $1,031,60053 54 of 12

method used p.7. I have chosen to use this stated average so that all expenses both within SJWC and

across other water utilities for later comparison can be fairly compared.

50 A.21-01-003, Exhibit F, Workpaper CH-08, tab WP 8-15, at cell I17, I22.

51 A.21-01-003, Exhibit F, Workpaper CH-08, tab WP 8-15, at cell I18, I23.

52 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-15a, at cell D13.

53 Additional Purchased Materials & Services $1,274,300 – Analytical Costs $242,700 = $1,031,600.

54 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-15a, at cell D22 – cell D13.

10

proposed O&M Purchased Materials & Services including $162,600 for Monetvina Plant 1

Maintenance, $500,000 for Well Rehabilitation, $200,000 for SJWC’s Sustainability, 2

Environmental Management System, $160,000 for Amazon Cloud Hosting, and $318,000 3

of operations security expenses.55 SJWC’s forecast and budget for Additional Expense, 4

shown in Table 1-3 below, shows items that are double-counted or not supported by the 5

specific plans or programs. SJWC’s forecast adds each of these expenses to the inflation-6

adjusted average total purchased services56 cost and then multiplying the combined sum 7

by the inflation factor to estimate the cost of the purchased services57 for the following 8

year. They are separate from the inflation-adjusted average purchased services figure58 9

and not used to calculate that figure for the following year. They are, however, included 10

in the total O&M Purchased Materials & Services figure given in the previous 11

paragraph.59 12

Table 1-3: Additional Expenses Proposed in SJWC’s Purchased Materials & Services

SJWC Proposed

2022

Cal Advocates’

Recommended 2022

Operations Security Expense $ 9,000 0

Analytical Costs $242,700 $242,700

Montevina Plant Maintenance $162,600 0

Well Rehabilitation $500,000 0

Sustainability-Environmental

Management System

$200,000 0

Amazon Cloud Hosting $160,000 0

Subtotal $1,274,300 $242,700

Operations Security Expense60 $309,000 0

Total $1,583,300 $242,700

55 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-15, at Cell K27. In Cell K27, SJWC

adds $309,000 on top of escalated 5-year average of recorded cost.

56 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-15, at cell K32.

57 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-15, at cell L27.

58 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-15, at cell K27.

59 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-15, at cell J32, K32.

60 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-15(a), cell K27. In cell K27, SJWC adds

$309,000 on top of the escalated 5-year average of recorded cost.

11

Among the Additional Expenses, the operations security budget of $318,00061 was 1

approved and integrated into the overall Purchased materials & services expense in the 2

2019 GRC.62 SJWC also included in its forecast an additional expense for Oracle 3

Utilities Customer Care and Billings (CC&B) Cloud Hosting63 that had already been 4

incurred in the 2019 GRC. SJWC also included it in its overall Purchased Materials & 5

Services Expense forecast.64 The transition year 2018 and TY2019 Total Purchased 6

Materials & Services Expense projected in the previous GRC,65 including the additional 7

expenses, are very similar to the 2019 expense66 given in the current GRC. This indicates 8

that the Additional Expenses67 were from those years were included in the previous 9

GRC’s total purchased services expense, and therefore were already included in the five-10

year average that determines the TY 2022 Total Purchased Materials & Services 11

Expense. The $160,000 Amazon Cloud Hosting budget, an equivalent service, includes 12

costs that were already included in the CC&B Cloud Hosting budget that must therefore 13

be removed from the Additional Expense forecast and budget. SJWC’s proposed 14

additional costs for Montevina Plant Maintenance, Well Rehabilitation, and 15

Sustainability-Environmental Management System, as shown below in Table 1-1. They 16

are not supported by any documentation showing how the listed budgets were determined 17

or how they are, specifically, going to be utilized. 18

In estimating the Purchased Service Expense budget, $318,000 of Additional 19

Expense tied to operations security should be excluded. As shown in Table 1-1, this 20

61 A.18-01-004, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-15a, at cell C12, D12.

62 A.18-01-004, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-15, at cell J32, K32.

63 A.18-01-004, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-15a, at cell D16

64 A.21-01-003 SJWC Exhibit F, Workpaper CH-08, Tab WP 8-15, at cell F25, G25.

65 A.18-01-004, SJWC Exhibit F, Workpaper CH-08, Tab WP8-15, at Cell J32, K32.

66 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-15, at Cell F25, G25.

67 A.18-01-004, SJWC Exhibit F, Workpaper CH-08, Tab WP8-15(a), at Cell C22, D22.

12

amount is composed of $9,00068 and $309,00069 of expenses related to operations 1

security. The $160,000 expense tied to Amazon Cloud Hosting should also be excluded 2

from the forecast because the Commission had already authorized $338,300 for CC&B 3

cloud hosting, an equivalent expense, in its previous GRC. SJWC estimates the total 4

O&M Purchased Materials & Services by taking the 2018-2020 average of the previous 5

year’s inflation-adjusted recorded expenses and adding the Additional Expenses listed in 6

Table 1-1 above. SJWC’s past recorded Purchased Materials & Services costs include 7

the Commission authorized Operations Security Expenses and Cloud Hosting Service 8

cost in the last GRC. As stated previously, estimating Purchased Materials & Services 9

cost by taking the average of the recorded costs, which includes similar expenses from 10

the past, and adding an additional purchased and material services cost without 11

supporting documentation will double the Operations Security cost and Cloud Hosting 12

cost because it will allow SJWC to recover a cost twice for the same additional expenses, 13

unnecessarily inflating customer bills. Therefore, the Commission should exclude 14

$318,000 of Operations Security Expense and $160,000 of Amazon Cloud Hosting cost 15

from the TY 2022 forecast and budget for Purchased Materials & Services. 16

The Commission should exclude $162,600 for Montevina Plant Maintenance costs 17

in the Purchased Materials & Services Expenses forecast and budget because SJWC did 18

not provide support for these costs. Although SJWC mentions that it has “retained 19

vendors to perform the maintenance tasks that the (Montevina) Water Treatment Plant 20

Operators cannot routinely perform,” the estimated annual Montevina Plant Maintenance 21

Expense costs appear excessive. The estimated 2021-23 cost is more than 75 times the 22

2015-17 pre-upgrade amount,70 and nearly 9 times the projected 2020 value. 23

Additionally, this cost is not supported by documentation demonstrating the need for 24

68 A.18-01-004, SJWC Exhibit F, Workpaper CH-08, Tab WP8-15(a), at Column D.

69 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-15, at Cell K27.

70 A.21-01-003, SJWC Exhibit E, p. 16-8, 2015-2017 pre-upgrade average cost = $2,111, 2019 cost =

$377,283, 2020 cost = $18,949, 2018-2020 average cost = $164,660. Estimated 2021-2023 cost =

$162,549.

13

such a substantial increase in the maintenance budget or indicating how that budget will 1

be spent. Hence, the Commission should exclude $162,600 of Montevina Plant 2

Maintenance cost from the TY 2022 Purchased Materials & Services forecast and budget. 3

The Commission should exclude $500,000 for Well Rehabilitation from the 4

Purchased Materials & Services Expenses forecast and budget because SJWC did not 5

provide support for these costs. According to Exhibit E of SJWC’s GRC Application,71 6

SJWC is planning on rehabilitating, on average, two of its rotary wells per year for an 7

estimated average annual cost of $500,000, or $250,000 per well. Well rehabilitation is a 8

yearly expense that SJWC should have anticipated for the 31 wells72 it acquired and 9

included in its overall Maintenance Expenses estimate, rather than listing it under 10

Additional Expenses. As it stands, SJWC has provided no supporting documentation 11

concerning the initial costs for the well repair equipment, variations in the cost of 12

maintaining individual wells, or any historical precedent to support the requested amount. 13

Given this lack of supporting documentation, the Commission should exclude $500,000 14

from the Purchased Materials & Services Expense forecast and budget. 15

The Commission should exclude $200,000 for Sustainability-Environmental 16

Management System costs from the Purchased Materials & Services expense forecast and 17

budget because SJWC does not support these costs. SJWC does not provide a project 18

plan or detailed budget. It also does not provide concrete goals for greenhouse gas 19

(GHG) emissions reductions, water conservation, or any other sustainability goal it plans 20

to meet after implementing the environmental management system (ISO 14001). Instead, 21

SWJC only provides a list of elements that the Sustainability-Environmental 22

Management System will contain and goals the system sets out to fulfill.73 The system’s 23

goals include compliance with environmental regulations, efficient use of water 24

resources, setting targets for the reduction of GHGs, and enhancing the environmental 25

71 A.21-01-003, SJWC Exhibit E, p. 16-9.

72 A.21-01-003, SJWC Exhibit E, p. 16-9.

73 A.21-01-003, SJWC Exhibit E, p. 16-10/11.

14

performance of the group’s suppliers.74 SJWC projects $200,000 in expenses, with no 1

detailed breakdown or supporting documents apart from the 2020 sustainability report, 2

and states that a dedicated staff with the mission of implementing the system will be 3

necessary. The 2020 Sustainability Report lists the same goals75 given in Exhibit E of 4

SJWC’s GRC Application and listed earlier in this paragraph. Furthermore, it is unclear 5

why SJWC cannot use existing resources to implement this system. The Sustainability-6

Environmental Management System costs are unsupported and unreasonable. 7

C. Expenses for Water Treatment, Water Quality and Distribution 8

This section contains O&M expenses related to water treatment, water quality, and 9

distribution. These expenses include Transportation, Regulatory, and Conservation 10

Expenses, Chemical costs, and “Other” Operating Expenses. Each of the previously 11

mentioned expenses should be estimated using an appropriate multi-year average rather 12

than the inflation-adjusted 2020 values used by SJWC. A multi-year average of these 13

costs will better account for their variability. 14

a. Transportation Expenses 15

SJWC requests a budget of $4,287,80076 for O&M Transportation Expenses, with 16

fuel costs accounting for $570,05277 of the total for TY 202278, respectively. 17

Transportation Expenses are primarily driven by labor, depreciation, and fuel, with fuel 18

being the focus of this testimony. Cal Advocates reviewed California fuel price market 19

74 A.21-01-003, SJWC Exhibit E, p. 16-10.

75 https://www.sjwater.com/sites/default/files/2020-12/SJW_Report_Layout_100320_Web_FINAL.pdf.

P.37

76 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-18, at cell K23. This figure comes from

SJWC’s application. SJWC’s 45-day update figure is $4,303,900.

77 This number is the total fuel cost multiplied by the proportion of O&M Transportation Expenses versus

Total Transportation Expenses = $644,836*($4,287,800/$4,846,922) = $570,052

78 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-18, at cell K16. This figure comes from

SJWC’s application. The 45-day update figure is $477,103 = 531,081*(4,303,900/4,790,828).

https://www.sjwater.com/sites/default/files/2020-12/SJW_Report_Layout_100320_Web_FINAL.pdf

15

data and verified the 3% annual fuel price increase SJWC used to calculate its fuel, and 1

by extension, overall transportation expenses as reasonable.79 Any non-fuel-related 2

differences between Cal Advocates’ recommended amounts and SJWC’s requested 3

amounts for Transportation Expenses are discussed in the Testimony of Cal Advocates 4

witness, Mr. Ting-Pong Yuen. 5

b. Water Quality Regulatory Expenses 6

The Commission should reduce SJWC’s requested TY 2022 budget for Water 7

Quality Regulatory Expenses to $234,961 from $319,338.80 SJWC estimated its 2022 8

Water Quality Regulatory Expenses by multiplying the 2021 value by the weighted 9

inflation adjustment factor and the 5-year average customer growth after calculating the 10

2021 value from the 2020 recorded cost using the same method. SJWC’s method ignores 11

the substantial variation in Regulatory Expenses over time. If the most recent year’s 12

Water Quality Regulatory Expenses were higher than average, this could lead to an 13

excessively high forecast of regulatory expenses and higher customer bills. As shown in 14

Figure 1-1 below, the last five years of recorded annual Regulatory Expense data show 15

that the expenses are cyclic in nature, with the expenses in each post GRC year (2017 and 16

2020) averaging close to three times those of the other years.81 Estimating Regulatory 17

Expenses for the next GRC solely on the expenses incurred in the year following the 18

previous GRC, 2020 in this case, with the highest recorded expenses among three years 19

would result in SJWC collecting $982,37382 from customers from 2022 to 2024, over 20

79 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-18 cell I41.

80 D.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-23 cell J21. This figure comes from

SJWC’s application; the 45-day update was $367,094.

81 D.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-23: Post GRC average =

(349,700+306,643)/2 = $328,171.5, Other Year Average = (57,720 +161,894 +176,250)/3 = $131,995 5-

year average = $210,441.

82 D.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-23 at cell J21, K21, L21.

16

37%83 more than is needed. To capture the three-year cyclic nature of Water Quality 1

Regulatory Expenses, the Commission should use the inflation-adjusted 2018-2020 2

average84 rather than just the 2020 recorded expenses to calculate a reasonable 3

Regulatory Expenses budget. 4

Graph 1-4: Cyclic Expenses in Regulatory Fees

c. Chemical Costs 5

SJWC requests a TY 2022 budget for estimated Chemical Expenses of $547,303.85 6

After reviewing SJWC’s prior years’ recorded costs and SJWC’s methods for calculating 7

chemical costs in its work papers, SJWC’s estimated chemical cost and requested budget 8

for TY 2022 is reasonable. 9

d. Conservation Expenses 10

SJWC requests a TY 2022 budget of $1,495,95486 for estimated Conservation 11

Expenses. After reviewing SJWC’s historical Conservation Expenses, and the methods 12

83 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-23, at cell J21, K21, L21.

($319,338+$327,605+$335,430)/($234,961+$238,720+$242,540) = $982,373/$716,221 = 1.3716

84 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-23, at cell F21, G21, H21.

85 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-23, at cell J13. The 45-day update value

is the same as the value listed in the application = $547,303.

86 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-01, at cell L51. This is updated to

$1,362,095 in the 45-day update

-

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

400,000.00

2016 2017 2018 2019 2020

RegulatoryFees

17

SJWC uses to calculate conservation costs in its work papers, SJWC’s estimated 1

Conservation Expenses for TY 2022 are reasonable. Moving forward, however, SJWC 2

should provide more detailed information in the GRC application concerning its ongoing 3

conservation programs, such as the potential water savings generated by Commercial, 4

Industrial, Institutional (CII)87 audits, or how many in-person educational events are 5

conducted, and what information is distributed. 6

e. “Other” Operating Expenses 7

The Commission should authorize a TY 2022 budget of $443,505 for “Other” 8

Operating Expenses. This figure is lower than the $499,60688 proposed by SJWC. The 9

operating expenses SJWC labels as “Other” are spread across all four of the five 10

categories of expenses listed in the executive summary (Source of Supply, Water 11

Treatment and Quality, Transmission and Distribution, and Customer Accounts). SJWC 12

calculated various categories of “Other” Expenses by multiplying the recorded 2020 13

expense amount by the weighted inflation adjustment factor and the 5-year average 14

customer growth.89 90 However, this methodology is not appropriate for the “Other” 15

Expenses, as it does not account for the year-to-year fluctuations in their rate of increase. 16

Therefore as the “Other” Operating Expenses do not increase consistently, they should be 17

calculated using a 2016-2020 inflation-adjusted average. 18

87 A.21-01-003, SJWC Exhibit E, p.258 (18-4).

88 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-02, at cell (L18+L35+L42+L52) 45-day

update TY 2022 figure was $498,374.

89 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP8-01, at cell K18. Example: $158,000

(rounded) (2021 Source of Supply “Other”) = ($155,864 (2020 value)*1.016 (Weighted Inflation))*1 (5-

yr average customer growth). The resulting value is multiplied by the next year’s weighted inflation and

5-year average customer growth to get the TY 2022 value = 162,000 (rounded).

90 A.07-05-062, Appendix A, page A-20, item 7 states that “Escalation year expenses may also be

increased by the most recent 5-year average customer growth…” It does not mention transition or test

years.

18

D. Maintenance Expenses 1

The Commission should authorize a TY 2022 budget of $17,157,908 for estimated 2

Maintenance Expenses. This amount is lower than the $16,988,342 proposed by SJWC.91 3

SJWC calculates each expense for maintenance-related purchased services using a 4

percentage (source of supply = 2.96%, pumping = 10.28%, water treatment + 5

transmission/distribution = 86.75%) of SJWC’s total 2020 purchased services 6

maintenance budget.92 SJWC calculates the percentage allocations of the total purchased 7

services budget for operations and maintenance93 using a 2018-2020 average.94 The TY 8

2022 “Transportation” and “Other” Maintenance Expenses tied to water transmission & 9

distribution are calculated by multiplying the recorded 2020 amount by the weighted 10

inflation factor and projected customer growth to generate the 2021 cost estimate. The 11

process is then repeated to estimate the rate case cycle years. This method wrongly 12

assumes that the most recent year’s expense represents the average or typical level of 13

annual expense SJWC is likely to incur during the next rate case cycle. Estimating future 14

Maintenance Expenses using only the most recent year’s expense could disadvantage 15

customers if the most recent year’s expenses were higher than average, increasing 16

customer bills. Given that the expenses that comprise overall maintenance costs fluctuate 17

from year to year, a more suitable method for calculating Maintenance Expenses is to use 18

the 2016-2020 average as the base figure when the year-to-year values trend up and down 19

rather than steadily increasing. 20

91 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-02, at cell L38. This is the value listed

in the application; the 45-day update expense was $17,883,488.

92 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-15, at cell F51,F52,F54. These are the

application values, the 45-day update values were 2.57%, 16.76%, 80.67%.

93 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-02, at cell I51 and I52.

94 A.21-01-003, SJWC Exhibit F, Workpaper CH-08, Tab WP 8-15, at cell K27.

19

IV. Conclusion 1

The Commission should authorize a TY 2022 budget of $220,784,055 for estimated 2

O&M Expense. This amount represents a more accurate budget than SJWC’s requested 3

budget of $207,830,874. The Commission should authorize the following TY 2022 4

budgets for the following categories of O&M Expense: 5

• $110,926,899, $3,662,614 and $56,762,808 respectively for Purchased Water 6

Potable, Purchased Water Recycled and Pump Tax expenses. 7

• $5,592,801 for Purchased Power. 8

• $10,421,700 for Purchased Materials & Services Expenses (sans water treatment/ 9

quality expenses) 10

• $1,457,854 for Water Treatment and Water Quality Expenses. 11

• $17,157,908 for Maintenance Expenses. 12

13

[END OF THE REPORT] 14

20

ATTACHMENT 1-1: STATEMENT OF

QUALIFICATIONS – ANDREW SWEENEY

21

Q1. Please state your name, business address, and position with the California Public 1

Utilities Commission (“Commission”). 2

A1. My name is Andrew Sweeney, and my business address is 505 Van Ness Avenue, 3

San Francisco, California 94102. I am a Public Utilities Regulatory Analyst I in 4

the Water Branch of the Public Advocates Office. 5

Q2 By whom are you employed and in what capacity? 6

A2. I am currently employed by the California Public Utilities Commission Public 7

Advocates Office as a Public Utilities Regulatory Analyst I in the Rates & 8

Revenue Section. 9

Q3. Please summarize your educational background and professional experience. 10

A3. I graduated from the University of California San Diego with a Bachelor of 11

Science in Environmental Systems and a Minor in Business. I later graduated from 12

the Rady School of Management with a Masters of Finance. Before joining the 13

Public Advocates Office, I worked as a corporate governance research associate 14

for Glass Lewis & Co. and as an Accounting Clerk for several companies. In my 15

time at the Public Advocates Office, I have analyzed bill arrearages for Class A 16

water utilities. I have written testimony for East Pasadena Water Company and 17

Warring Water Service’s proposed mergers with California-American Water. 18

Q4. What is your responsibility in this proceeding? 19

A4. Writing testimony analyzing the utility’s Operations and Maintenance Expenses. 20

Q5. Does this conclude your prepared direct testimony? 21

A5. Yes, it does.22

22

ATTACHMENT 1-2: VALLEY WATER 2021-2022

PROPOSED WATER CHARGES

26

ATTACHMENT 1-3: SJW GROUP 2020

SUSTAINABILITY REPORT

report and recommendations on operation & …

Documents